Submitted by Eric Peters, CIO of One River Asset Management
"“Based on my many conversations, if I were to create a composite of the emerging consensus amongst traders today, it would be this,” I said, answering the investor’s question.
“The trade war and America’s domestic political drama has sparked an economic soft patch. The Fed has panicked. It’ll cut rates even though it doesn’t need to. Every other country is stimulating too. And just as the stimulus kicks in, we’ll have a trade war truce which will reignite animal spirits in corporate board rooms everywhere, lifting capital investment."
"But that’s not the end of the story,” I said, describing the emerging consensus.
"The starting point in terms of positioning is a massive investor underweight in risk assets. Despite the S&P being at all time highs, there have been investor outflows. Active managers are all underperforming and are scrambling to chase performance. Corporate buybacks continue at a $1trln/year pace. There is $13trln in negatively yielding debt globally. And now that we’re in an earnings recession, people say things are probably going to get better anyway."
"The continued shift toward passive investing is pushing more cash into the market,” I continued.
“Pensions are taking more risk in order to hit their magic +7.5% return targets. The capitulation to this collective view has grown over the past month. Before that there were plenty of bears. And now everyone agrees this will be the last leg of history’s longest bull market."
"Guys managing other people’s money seem more bullish than those who trade their own capital. Naturally, everyone plans to sell to someone else before this market rolls over."